@Retro-Arcade-Fan It will upgrade all packages that are visible to the OS packet manager(s)[1], if that includes emulators they will also be updated - but that is a question best be answered by people with more insight/knowledge of the retropie-setup script.
[At least on the Pi4 where I have RetroPie installed on top of the legacy Raspberry OS I haven't encountered anything like broken emulators after a full-upgrade, but i am only using a limited set of games/emulators on that machine]
1: like apt, apt-get, aptitude ...